Zero-Sum Game: After Costs, Negative

Michael Whitman · Trading since 2017, full-time since 2020 · Reviewed 2026-09-06

A zero-sum game is one where every gain is matched by an equal loss elsewhere. Shares are not zero-sum, because the underlying businesses create value, but derivatives are - and once trading costs are subtracted, the participants as a group finish below zero.

How it works

A candlestick chart of the site's shared price history. The headline on the chart reads: One side's gain is exactly the other side's loss. — One side's gain is exactly the other side's loss. Illustrative chart - not real market data.

A zero-sum game has a fixed total. Every pound gained is a pound somebody else lost, and no value is created or destroyed by the activity itself.

A gently rising stretch of the long price series. The headline on the chart reads: Shares are not zero sum - the company produces something. — Shares are not zero sum - the company produces something. Illustrative chart - not real market data.

Share ownership is not zero-sum. The companies underneath produce goods, earn profits and pay dividends, so all the holders can gain together over time without anybody losing.

A calmly advancing stretch of the long price series. The headline on the chart reads: But a future or an option has a counterparty for every pound. — But a future or an option has a counterparty for every pound. Illustrative chart - not real market data.

Derivatives are different. A futures contract or an option is an agreement between two parties, so every pound one side gains is a pound the other side lost. No production happens anywhere in the transaction.

Costs make it negative

A choppy, directionless stretch of the long price series. The headline on the chart reads: And after costs the sum is below zero, not at it. — And after costs the sum is below zero, not at it. Illustrative chart - not real market data.

The intermediaries are paid regardless of outcome. Spreads, commissions and exchange fees come out of the pool before it is distributed, which means the participants as a group finish below where they started.

Every round trip here costs a share of a bar. Illustrative chart - not real market data.

On this site’s shared history a round trip is 2% of a median bar’s range and 45% of the smallest bar. That is the amount leaving the pool on every completed trade.

A strongly rising stretch of the long price series. The headline on the chart reads: Which means the average participant loses by the cost. — Which means the average participant loses by the cost. Illustrative chart - not real market data.

So the average participant loses, by exactly the cost. Not because they are unskilled — because the arithmetic of a negative-sum game guarantees it for the group. Half of participants must do worse than that average, which is a much harsher statement than it first sounds.

A declining stretch of the long price series. The headline on the chart reads: So an edge has to come from somebody else's mistake. — So an edge has to come from somebody else's mistake. Illustrative chart - not real market data.

Which is where an edge has to come from. In a growing market a return can come from growth; here it can only come from another participant making a worse decision than yours, repeatedly.

Not every counterparty is competing

A 72-bar window of the shared price history. The headline on the chart reads: And not every counterparty is trying to win. — And not every counterparty is trying to win. Illustrative chart - not real market data.

Some participants are buying insurance rather than seeking profit. A producer selling futures to fix a price is transferring risk, and losing on the contract while the underlying business gains is an acceptable outcome for them.

Which is the honest answer to who the loser is. Hedgers pay speculators to absorb risk, and that payment is a legitimate source of return that does not require anybody to be wrong. Understanding which kind of counterparty you are facing is more useful than any view about the market, and it explains why commodity futures behave differently from a purely speculative contract.

In practice

A candlestick chart with a volume histogram beneath it, with the volume histogram emphasised. The headline on the chart reads: Participation tells you how many people you are competing with. — Participation tells you how many people you are competing with. Illustrative chart - not real market data.

Volume is the size of the field. Heavily traded markets are efficient because a great many people are looking for the same mistakes, which makes an edge harder to find and cheaper to trade when found.

A long-horizon candlestick view of the same price series. The headline on the chart reads: A longer horizon moves you out of the zero-sum game. — A longer horizon moves you out of the zero-sum game. Illustrative chart - not real market data.

Lengthening the horizon changes which game you are in. Owning productive assets for years is positive-sum; trading contracts against other participants for minutes is not, and the choice between them is a choice of game rather than of skill.

A candlestick series containing several opening gaps, with the largest opening gap marked. The headline on the chart reads: And a gap transfers the whole move in one print. — And a gap transfers the whole move in one print. Illustrative chart - not real market data.

A gap transfers the entire move at once. Somebody’s loss on that print is somebody else’s gain, and neither had an opportunity to act.

A declining stretch of the long price series, with the entry price and the level at which a stop would trigger drawn as horizontal lines. The headline on the chart reads: Your stop is somebody else's entry, by definition. — Your stop is somebody else's entry, by definition. Illustrative chart - not real market data.

Every stop filled is somebody’s entry. That is not a conspiracy, it is what a transaction is — and it is worth remembering when a stop-out feels targeted.

A 72-bar candlestick section of the shared price history. The headline on the chart reads: The book is where the transfer physically happens. — The book is where the transfer physically happens. Illustrative chart - not real market data.

The order book is the mechanism of the transfer. Every price is a place where two people disagreed enough to trade, and one of them will turn out to have been wrong.

One more distinction is worth making because it changes who you are competing against: the market maker is not taking a view. A firm quoting both sides earns the spread and aims to hold no position at all, so its profit does not require you to be wrong — it requires you to transact.

That is a third category alongside the speculator and the hedger. Speculators are competing with you, hedgers are paying you, and market makers are charging you. Only the first of those is adversarial, and knowing which one is on the other side of a given trade explains more about the economics than any view about direction.

It is not all of investing. Owning productive assets is not.

It is not actually zero after costs. It is negative.

It is not a reason not to participate. Hedgers pay to transfer risk.

And it is not a statement about any individual. It is about the group.

When it fails as a framing

A sideways, range-bound candlestick series. The headline on the chart reads: In a range the costs are the only thing being transferred. — In a range the costs are the only thing being transferred. Illustrative chart - not real market data.

In a range the description is most literally true. Nothing is produced, prices end where they began, and the only money that moved was the costs — which is the clearest illustration of what a negative-sum game actually is.

The second misreading is applying it to shares. Long-term equity ownership is positive-sum, and importing this framing there produces unnecessary pessimism.

A third is concluding that nobody can win. Somebody must; the arithmetic says the group cannot.

A fourth is ignoring the hedgers. They are paying to transfer risk, which is a real and non-adversarial source of return.

And a fifth is forgetting the costs. They are the reason the game is negative rather than balanced, and they are the one part fully under your control.

The original data

On this site’s shared 576-bar history the round-trip cost is 0.0098 price units — 2% of the median bar range of 0.4916 and 45% of the smallest bar of 0.022 — and it exceeds 10% of a bar’s range on 15 of the 576 bars. Of the 31,760 videos in the corpus, 1 has “zero sum” in the title, at 30,206 views. The figures are in research/series-measurements.json and research/corpus-coverage.json.

A gently rising stretch of the long price series, cut short at the decision bar. The headline on the chart reads: You are up and somebody is down. Who, and why? — You are up and somebody is down. Who, and why? Illustrative chart - not real market data.

One video in 31,760 is close to complete absence for an idea this fundamental. The arithmetic decides whether an activity can work at all, and it is essentially untaught. Before trading any derivative, answer one question in a sentence: who is on the other side, and why are they willing to be there? If the answer is a hedger transferring risk, the position has a rationale. If the answer is another speculator with the same information, the costs decide it.

Futures is the clearest example of the structure. Options is the other, with an extra dimension. And why traders lose money is where this arithmetic shows up in outcomes.

What I actually do

The question that changed how I choose markets is who is on the other side and why. In shares I can be right without anybody being wrong - the business grows and we both do well. In a futures contract somebody has to lose exactly what I make, and I want to know who I think that is.

— Michael Whitman

This page is educational, not financial advice. Test every idea on your own charts before risking money.